{"id":5219,"date":"2025-06-12T14:00:09","date_gmt":"2025-06-12T05:00:09","guid":{"rendered":"https:\/\/bdti.or.jp\/proposals-for-enhancing-productivity\/"},"modified":"2025-12-03T15:23:56","modified_gmt":"2025-12-03T06:23:56","slug":"productivity","status":"publish","type":"page","link":"https:\/\/bdti.or.jp\/en\/productivity\/","title":{"rendered":"\u201cProposals for Enhancing Productivity\u201d"},"content":{"rendered":"\t\t
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Nicholas Benes \u201cProposals for Enhancing Productivity\u201d<\/h2>\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t
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January 2016
The primary cause of Japan\u2019s prolonged economic stagnation is that Japanese companies have been unable to withdraw from unprofitable businesses or consolidate companies, preventing the reallocation of corporate assets.<\/p>

\u2192To overcome this, the following are currently necessary:<\/p>

\u2460Further Strengthening of Governance<\/strong><\/h5>

Continuous enhancement of corporate governance, primarily through ongoing review of the Corporate Governance Code. Improvement of pension fund governance aimed at ensuring the Stewardship Code is effectively implemented and functions properly.<\/p>

\u2461Improving Labor Market Rigidity<\/strong><\/h5>

Introduction of a new employment category, \u201cRegular Employee Type 2\u201d<\/p>

Strengthening Corporate Governance
1. Institutionalize the continuous follow-up of the Corporate Governance Code.<\/strong><\/em><\/p>

Following Germany\u2019s example, where governance was improved through the introduction of a Corporate Governance Code, the Code in Japan should be reviewed annually and continuously revised.<\/p>

\u2193
\u25cb\u3000Formally establish a permanent, small specialized body to conduct evaluations and make proposals for this purpose.<\/p>

\u30fbWhile the introduction of the Code is highly commendable, it is important to recognize that it only marks the starting line.
\u30fbMany countries have failed with similar Codes. To ensure the success of the Code in Japan, it is crucial to follow through with full responsibility until the end.
\u30fbEstablishing a permanent body formally demonstrates the government\u2019s long-term commitment and clarifies accountability.<\/p>

\u25cb\u3000Key items to add to the Corporate Governance Code in the near term:<\/p>

Creation of an Independent Outside Director Advisory Committee<\/p>

\u30fb\u30fbA committee composed solely of independent outside directors that provides written advice to the board on matters such as nominations, compensation, and other issues where management interests may conflict with those of the company.<\/p>

Disclosure of post-retirement compensation for directors (advisors, consultants, etc.)<\/p>

\u30fbThis would eliminate de facto \u201cdirector compensation\u201d that does not receive shareholder approval. The existence of \u201cghost directors\u201d who bear no responsibility to shareholders is a concern for both domestic and international investors, and it also hinders decisive decision-making by current management, impeding corporate growth.
2. Issues to be addressed through legal reforms, etc.<\/p>

\u25cb\u3000Promote interactive and meaningful general meetings of shareholders<\/p>

Address the problem of concentrated AGM dates.<\/p>

\u30fbThe corporate tax filing deadline (Article 75-2 of the Corporate Tax Act) is a bottleneck. Amendments to the Corporate Tax Act or guidance should remove this barrier.
\u30fbSpecifically: \u2460 Extend filing deadlines (1 month \u2192 3 months) if auditors cannot provide an unqualified opinion; \u2461 Limit the number of AGMs held per day (via law or stock exchange rules).<\/p>

Establish frameworks for interactive AGMs in the internet and smartphone era<\/p>

\u30fbTo move beyond \u201cformalistic\u201d meetings, steps toward interactive AGMs are essential.<\/p>

\u30fbFor example, the Ministry of Economy, Trade and Industry\u2019s study group on electronic AGM processes should include: \u2460 Internet streaming of AGMs, \u2461 Real-time voting, \u2462 Provision of online spaces allowing numerous shareholders to participate anonymously and ask questions, enabling efficient pre-AGM dialogue with the company.<\/p>

\u25cb\u3000Expansion of the Executive Officer System<\/p>

Begin efforts to abolish the \u201cexecutive officer\u201d system.<\/p>

\u30fbThe so-called \u201cexecutive officer\u201d system was created to reduce the number of board members and improve governance. However, since it is not recognized under the Companies Act, executive officers are effectively positioned similarly or equivalently to directors but are not subject to shareholder accountability (i.e., they cannot be sued under derivative shareholder actions), resulting in weakened governance. The core issue is that the Companies Act does not allow non-director executive officers in companies without nominating committees.
\u30fbSpecifically, the Companies Act should be amended to permit the appointment of non-director executive officers (\u201cexecutives\u201d) even in companies without nominating committees.<\/p>

2. Improving Pension Fund Governance<\/strong><\/em><\/p>

Enhance governance to fully mobilize pension funds, which are a \u201csleeping giant.\u201d<\/p>

\u30fbThe success of the Corporate Governance Code depends on whether investors, particularly pension funds as asset holders, can take substantive action. This is the essence of the Stewardship Code. Improving investor governance is essential for effective stewardship.<\/p>

Specific Measures:<\/p>

1. Establish mechanisms for beneficiaries to hold pension fund directors accountable.
Currently, beneficiaries (employees) have no direct means to pursue accountability, leaving directors effectively unaccountable for management.<\/p>

2. Establish professional knowledge standards for pension fund directors, etc.
\u201cIn that case (referring to the AIJ incident), the pension fund directors who were deceived were actually investment novices, and many were \u2018amakudari\u2019 from the former Social Insurance Agency, which drew strong criticism.\u201d (Noruo Higuchi, What the AIJ Case Suggests\u2014A Society Without a Fiduciary Duty Law, Sh\u014dji H\u014dmu No. 1985)<\/p>

3. Promote adoption of the Stewardship Code by pension funds.
\u30fbCurrently, only one non-financial corporate pension fund has signed the Stewardship Code.<\/p>

4.Ensure that pension funds reliably exercise their voting rights and require disclosure of voting records (by individual company and agenda item).
\u30fbSimilar obligations should also be imposed on institutional investors other than pension funds.<\/p>

5. Have the GPIF publicly declare its support for the Corporate Governance Code.
\u25cb The Stewardship Code should be reviewed annually and continuously revised.

<\/p>

The Stewardship Code should be reviewed annually and revised based on surveys of implementation, following the UK model.<\/p>

3. Creation of \u201cRegular Employee Type 2\u201d<\/strong><\/em><\/p>

\u25cb Introduce an open-ended employment contract (\u201cRegular Employee Type 2\u201d) allowing dismissal with severance proportional to tenure.<\/p>

\u30fbAs Japan\u2019s industrial structure has shifted from being manufacturing-centered to one where 80% of GDP comes from the service sector, improving labor market flexibility is urgent.
\u30fbCurrently, companies face only two options: regular employees, who are difficult to dismiss, or fixed-term non-regular employees. Hiring regular employees carries significant risk for companies, while investing in non-regular employees is risky due to their fixed-term status. Consequently, it is difficult to develop and retain talented personnel.
\u30fb\u201cRegular Employee Type 2\u201d provides companies with predictability regarding dismissal, enabling withdrawal from unprofitable businesses. At the same time, setting reasonable severance compensation benefits employees.<\/p>

(Note: Since this simply adds a new option, it does not conflict with the previous stance of the Abe administration. As it is a policy beneficial to workers, there is no reason for the Democratic Party to oppose it.)
\u25cb Benefits of Regular Employee Type 2<\/p>

1. Companies will find it easier to hire employees.
\u30fbMany companies had been hesitant to hire women and non-regular employees as full-time regular employees.
2. It creates incentives for companies to invest in human capital development and training that lead to productivity improvements.
\u30fbIf productivity improves through human capital development, employee benefits and rewards will also increase.
3. It enables companies to withdraw from unprofitable businesses and allows for the reallocation of corporate assets.
It helps address the problem of skill mismatches.
~To Promote Reform~<\/p>

\u25cb Factors Hindering Reform<\/p>

Stakeholders clinging to vested interests (e.g., pension product providers)<\/p>

Fragmented bureaucracy (e.g., Ministry of Health, Labour and Welfare vs. Financial Services Agency vs. Ministry of Economy, Trade and Industry)<\/p>

\u25cb\u3000Policy-making needs to be free from political constraints<\/p>

\u30fb\u3000Develop policies based on objective data analysis.<\/p>

\u30fb\u3000Expand the use of external experts and establish a system that prevents obstruction by bureaucrats with vested interests, while ensuring that external experts are properly compensated to enable them to act responsibly.<\/p>

\u30fb\u3000Formulate clear policies at an early stage through political leadership, excluding bureaucratic interference.<\/p>

\u30fb\u3000Establish a neutral think tank independent from government ministries to support the Cabinet Office, enabling it to not only analyze data but also take the lead in formulating concrete policies.<\/p>

Nicholas Benes (As an individual)<\/p>\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t","protected":false},"excerpt":{"rendered":"

Nicholas Benes \u201cProposals for Enhancing Productivity\u201d January 2016The primary cause of Japan\u2019s prolonged economic stagnation is that Japanese companies have been unable to withdraw from unprofitable businesses or consolidate companies, preventing the reallocation of corporate assets. \u2192To overcome this, the following are currently necessary: \u2460Further Strengthening of Governance Continuous enhancement of corporate governance, primarily through […]<\/p>\n","protected":false},"author":5,"featured_media":0,"parent":0,"menu_order":0,"comment_status":"closed","ping_status":"closed","template":"elementor_header_footer","meta":{"opb_popup_content":"Popup 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